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(M2) Trend Condition Remains Bearish


Stagflation Worry Drives Futures Flatter


Stagflation Worry Remains In The Air

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MNI (Washington)
--Watching Data for Signs of Spillover Effects on Growth, Inflation
By Jean Yung
     WASHINGTON (MNI) - Disruptive trade actions and overheating "could prove
problematic" for the U.S. economy despite a very positive outlook at present,
Federal Reserve Bank of Boston President Eric Rosengren warned Friday, offering
insight into his thinking on risks around tariffs and above-trend growth. 
     He is already "in favor of somewhat more tightening than the median FOMC
member," citing personal forecasts for the unemployment rate and inflation as
"somewhat stronger than the median" forecast among his FOMC colleagues, he said
in remarks prepared for the Greater Boston Chamber of Commerce.
     Spillover effects from tariffs could dampen growth and push inflation
higher, while running the economy too hot could lead to an "undesirable
'boom-bust' scenario," he said. 
     It would take a "significantly broader set of trade actions" than those so
far announced by the Trump administration to materially reduce the roughly $2.4
trillion in annual U.S. exports, but indirect effects are possible and may be
difficult to measure, Rosengren said. 
     For example, concerns about possible supply disruptions might cause firms
to source supplies from other countries, "and the new capacity in these other
countries could potentially mean less U.S. investment and employment," he said. 
     Tariffs could also push up consumer prices directly, while actions to avoid
possible tariffs can cause precautionary stockpiling, which can disrupt the flow
of orders and cause production bottlenecks, he said. 
     On the other hand, it's possible that unemployment will fall even more
rapidly in the short-term than he expects. If unemployment moves far below its
natural rate and stays there, history illustrates that "tended to generate
conditions that resulted in a recession," he said.
     He sees the jobless rate falling to 3.7% by the end of the year, one-tenth
below the median among FOMC members in March. 
     In light of these risks, Rosengren said he would be watching incoming data
--MNI Washington Bureau; +1 202-371-2121; email:
MNI Washington Bureau | +1 202-371-2121 |

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